Hello again, another week has passed and here I am sitting at my trusty Dell laptop putting together this week’s post. An interesting week it has been as well, reading through the feedback on our mail-out and last week’s post.

It is an interesting dynamic asking for your potential client’s thoughts and experiences! Something I think should happen more often in all industries. We haven’t received any actual feedback on the website; most people’s response has either been by email or by phone. Seems the New Zealand I don’t want to be seen complaining syndrome is evident again. If you wish to opine but are shy or don’t wish to be seen complaining on this blog, please just use your initials or a pseudonym. We want to hear from you!

Well, am I surprised by what we have heard? To be honest, I’m not! It hasn’t all been bad though, again I am not surprised on the positive feedback received on the successful brokers we know are out there. But on the whole there is a lot of ill feeling towards the business broking fraternity out there and it is all so unnecessary, because most of that feeling points towards the basics.

While we were in the mood, we searched around the industry to see if there was anything any other party had done any survey in either the Real Estate or the Business broking end of the market. Realestate.co.nz has an annual survey where they randomly send out 100 email enquiries to Real estate companies throughout New Zealand and measure the response. 12 of those targeted specific buyer enquiries were never answered. 22% of those sent to the Auckland region were never answered. Can you believe that? An industry that is driven by success fees, an industry where RE sales people would sell their mums to get the inside track on a cashed up buyer, and 22% of enquiries sent to Auckland agents weren’t responded to. The realestate.co.nz website's recommendations were as follows: 1) Check that your listed email address is correct. 2) Someone in the office has a cell phone that receives email. 3) Set up email at your home so you can respond at the end of the day. Ground breaking stuff! These sales people are allowed to sell businesses!!! You can see the report here: realestate.co.nz

While I would freely admit, it is my understanding that very few former Real Estate sales people are hired as brokers, most try to hire brokers who have business ownership experience or business to business sales experience.

In our poll we asked participants to give us their thoughts on Business Sales companies and give us examples or experiences if possible. Listed below:

I have filled out many NDA’s sent them back and often never hear from the broker!

A buyer goes to the trouble of filling out an NDA, faxes or scans to email, and forwards to the broker and then never hears anything. This was mentioned a number of times. On similar threads, IM was sent and never heard from broker again, left message with reception and on broker’s cell phone and never heard from him/her. The most common thread is not hearing from the broker, no feedback or not returning messages. This is all entry level behaviour.

I asked the broker what the turnover was of the business in question, his reply was that he would call the Vendor and ask.

It is incredible that a broker knows that little about the business that he/she is marketing. This again points towards the bulk listing of businesses just for numbers sake, and brokers not having the time or inclination to immerse themselves in the businesses that they represent. Lack of understanding of the businesses was again a common thread.

Lack of consistency between brokers regarding EBIT, EBITDA and EBPITD and what makes up each.

Buyers find it very hard to compare business opportunities offered by different companies because of the inconsistency on what is and what is not included in measurement of the EBIT, EBITDA or EBPITD. In some cases Owners incomes are quoted at below market rates, spouse’s involvement is not accounted for and even rent quoted at below market rates (Where business owner owns site) All this leads to inflated Cash Surplus measurements. On Bizbuysell website today there is a business quoting an EBIT figure and has a notation that says “before owner’s salary”.

I noted that in that in an Information Memorandum a suggestion was made that “there would of-course be some private expenditure that could be included in the purchases…

Personal expenses and discretionary expenses are always a tricky subject to talk about, but to document it in an Information Memorandum is insanity. I wonder what the broker might do if his client was audited?

We will supply the financials when the business is under contract.

This seems very illogical to me unless as a broker you wish to enter into multiple due diligences investigations. The offer you get from any purchaser in this instance can only be indicative at best, offers little surety to the vendor and sets him/her up for the big grind towards the end of the DD investigation. If a vendor is reluctant to release financials until the business is under contract my advice is not to list it.

Brokers not fully disclosing material details that affect the business.

Not disclosing material events that can affect the viability or value of the business going forward. We have heard of: failing to disclose a demolition clause in the lease of a retail business, known future loss of a major customer, major supply agencies not being renewed, key staff intending to leave, no adjustment made for old or obsolete stock, understatement of vendor's involvement. These are all issues a broker should clarify before a business goes to market.

Brokerages will hire anyone to be a broker; it is a numbers game, just bums on seats.

This one is pretty self explanatory, but this highlights the notion that you don’t have to pay a broker unless a sale is made so you might as well have all your desks full, no matter what their experience is.

Broker bought the listing by inflating the list price.

This seems to happen too readily. A business hits the market at a captilisation rate way above other opportunities. Either the broker inflated the price to get the listing or was too weak to tell the owner what his business is really worth.

To conclude, there were a number of others points that were raised that were more of a technical nature and/or a personal nature. But on the whole, we weren’t surprised by the feedback. Most of it points towards buyers wanting consistency between brokers and brokerages, for brokers to follow up and do the basics, some professionalism to be shown in collation and presentation of information, leadership in positioning of businesses to reflect current market conditions, integrity to show both pros & cons of each business and finally experience to guide the buyer through the process.

Paul and I are not going to say that we are the perfect brokers and that we haven’t in the past made mistakes. Nor are we saying that there aren’t any good brokers out there, we know there are some quality individuals. What we are saying is this industry needs to buck it’s ideas up and listen to our customers, we concede that in the majority of situations we work for the vendor, but to do our job properly for the vendor we have to make it easier for the buyer to buy! There are more buyers than sellers in our market, so why then are the industry conversion rates as low as they are?